Trade uncertainty also lingered in the background. With the US tariff deadline approaching on July 9th, markets watched for signs of progress in the ongoing US-EU trade talks. The EU indicated it was ready for a deal, particularly pushing for exemptions on autos and steel, but also stated it was prepared if no deal came through. European Commission President von der Leyen’s comments summed up the mood: open to agreement, but bracing for the possibility of escalation.

The euro has solid footing after June’s HICP inflation held right at the ECB’s 2% goal, giving policymakers little reason to rush into cuts and lending steady support to the currency. PMI readings stuck just above 50, which shows activity is stable and helps keep the euro from drifting lower. Even a strong US NFP report only paused euro strength rather than reversing it, underlining its underlying resilience. ECB speakers have warned about an overly strong euro, but their balanced tone suggests they’ll let markets set the pace rather than force a weaker currency.

Healthy trade flows with the UK and Asia, plus the prospect of modest growth in the autumn, should nudge the euro gently higher. On balance, the euro’s baseline bias is weakly bullish to neutral, more likely to grind upward.

USD: Just short

The US Dollar had a volatile week, but ended much stronger after a dramatic shift driven by a solid US labor market. The DXY started off weak, dropping to a multi-year low below 96.40. This early decline was caused by month-end flows, growing concerns over the US deficit due to the “One Big Beautiful Bill” (OBBB), and a very weak ADP employment report that showed a loss of 33,000 jobs. That report reinforced expectations for near-term Fed rate cuts. However, everything changed on Thursday after a strong Non-Farm Payrolls report. The headline number showed 147,000 new jobs and the unemployment rate unexpectedly dropped to 4.1%, which quickly ended the slowdown narrative. This strong data sparked a sharp rally in the dollar, sending the DXY back above 97.30 as traders quickly priced out a September rate cut. The dollar held onto these gains into the weekend, though further upside was limited by the final approval of the deficit-expanding bill and renewed trade tensions after President Trump threatened a fresh wave of tariffs.

The June Non-Farm Payrolls report was the key moment of the week. It came in well above expectations at 147,000 jobs compared to the 110,000 forecast. The drop in the unemployment rate to 4.1% also surprised markets. Even though Average Hourly Earnings only rose 0.2% month-over-month, the strong job numbers were seen as a clear sign that the Fed could remain patient. The report was further supported by a sharp rise in government jobs, which increased by 73,000.

Earlier in the week, labor data sent mixed signals. The ADP report on Wednesday came in extremely weak, showing a drop of 33,000 jobs compared to the expected 95,000. But Tuesday’s JOLTS Job Openings data for May showed strength, rising to 7.77 million.

The ISM Manufacturing PMI on Tuesday ticked up to 49.0, which beat expectations but still signaled contraction. On Thursday, the ISM Services PMI returned to expansion at 50.8. A weak point in both reports was the employment sub-index, which dropped into contraction territory.

Other data included a drop in Initial Jobless Claims to 233,000, showing continued tightness in the labor market. However, the US international trade deficit widened to $71.5 billion in May.